How else can you explain how the co-author of Dow 36,000 was able to convince a publisher to allow him to demonstrate his lack of acumen on a related subject?

After penning what became the classic exemplar of Dot Com excesses — a spectacularly wrong tome about equity valuation that sent Dodd & Graham spinning in their graves — Glassman has now sharpened his pencil again, casting about for another subject to be just as spectacularly wrong about.

This time, it is bonds.I expect this book to be just as reliable a fade as the last one.

As Jason Zweig observes, even Glassman’s mea culpa was wrong:

“Mr. Glassman may not be exactly right about what he got wrong. His attempts to reconcile his earlier views with today’s realities shed light on a crucially important question: What does it mean to say that an investment is “risky”?”

I have a simpler explanation: Political bias.

Dow 36,000 was co-authored with Kevin Hasset, who now pollutes the pages of Bloomberg with his AEI inspired wingnuttery; Glassman is also an AEI alum, and he will head the George W. Bush Institute. And as I noted last weekend in The Washington Post (Why politics and investing don’t mix), political bias is a surefire way to lose money in the markets.

Glassman’s last book came out when EMH was de rigeur amongst the right leaning cognoscenti; He extrapolated the market rally to infinity — or at least 36k — based upon fundamentally flawed ideology.

And now, with a Socialist/Kenyan/Muslim in the White House, well . . . draw your own conclusion.

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Dow 36,000 for Bonds!”

Silly all around. Glassman’s first book. Glassman’s coming book. Somehow turning this into a political thing. All silly. I’m pretty sure folks of all ideologies make asses of themselves when extrapolating the recent past into the future. Hey, didn’t Dow 36K come out when Clinton was President and Al Gore was expected to succeed him?

Is this the same guy that Tom Keene and Ken Prewitt like to trot out on Bloomberg Surveillance for payroll fridays? I always thought he seemed reasonable. Plus he works as an econonist at a TBTF bank and those guys are usually non-controversial ninnies.

As far as Glassman goes, I read his column when I was a high school kid when he wrote for the Washington Post. Thought he was a bit weird so I stuck to reading Kornheiser and Wilbon about sports. Methinks that Glassman & Hassett should do their own version of Pardon the Interruption just so we can all mock them for their wacky predictions.

Glassman’s last book came out when EMH was de rigeur amongst the right leaning cognoscenti; He extrapolated the market rally to infinity — or at least 36k — based upon fundamentally flawed ideology.

What’s odd is that EMH (other than the weak form) had, among right-leaning academics, already taken a devastating hit as a result of Black Monday in 1987: a ~25 percent loss in equity markets with absolutely no new information. No deaths. No revolutions. No oil embargoes. Nothing.

As honest right-leaning academics, such as Luigi Zingales, now admit, the recent financial crisis provides no new insights into the infirmaties of EMH that weren’t already recognized by the late 1980′s. I have no idea why EMH would be advanced by right-leading cognoscenti whose job it is to make money based on informational imperfections in financial markets.

A few years after Clinton health care initiative was derailed, he wrote an article in the Washington Post, explaining how the market was already taking care of rising health care costs, showing the proposals had been unnecessary. He proceeded to present the numbers to support his position. These numbers showed that costs continued to rise at rates above the general inflation rate over the entire period he was looking at. His conclusion was that since the rate at which health care costs had been rising was decreasing, the market had solved the problem. Apparently, in his world, it doesn’t matter with affordability how much things actually cost; as long as the second derivative is negative you’re OK.

And love or hate health care reform, I think it’s safe to say Glassman’s call that rising health care costs had been defeated has not held up.

(You may want to argue that health care costs have kept rising because of a lack of a free market, and you’re free to make your case for that. That’s not the same, though, a saying the free market is already solving the problem, as Mr. Glassman did).

Barry,
I don’t know anything about Glassman’s politics, but I think he’s guilty of good old-fashioned recency bias. Back when he wrote Dow 36,000, stocks were on a tear. Since then they’ve gone nowhere, while the Lehman/Barclay’s index has returned about 6% a year. So what does he recommend? More bonds! Fewer stocks! Of course when he wrote this new book, the 10-year was almost exactly twice as expensive as it was in 1999 when he hated bonds. And the p/e of the stock market has come down from around 30 to around 15, so, by that measure, it’s exactly twice as cheap. More bonds! Fewer stocks!

One of the maxims of investing is that if something sounds too good to be true, it probably is too good to be true. Which brings us to one of the hottest business books around, Dow 36,000 (Times Books, $25) by James Glassman and Kevin Hassett. I don’t normally review books, but Dow 36,000 has lots of buzz, as we say in the trendsurfing business. With good reason. Hassett is a former senior economist with the Federal Reserve Board, Glassman is a smart writer who for the past six years produced a fine business column for The Washington Post. More than that, Glassman and Hassett have a head-turning thesis: that over the long term, U.S. stocks are no riskier than your grandmother’s boring Treasury bonds and that the Dow, far from being overvalued, should be around 36,000. So you see why the book is buzzworthy. It’s also schizophrenic. It has wonderfully clear explanations of financial theory, excellent advice on general investing approaches. But it’s also got seriously flawed parts, where the authors assert claims with mathematical precision but actually play fast and loose with numbers.

My problem with Dow 36,000 has nothing to do with the fact that the Dow has fallen more than 1,000 points from its all-time high on Aug. 25. Stomach-churning, but for long-term investors, a mere blip. My problem is that even if you accept the thesis that U.S. stocks are no riskier over the long term than Treasury bonds–which I don’t–you have to torture the numbers to justify 36,000 as a reasonable price for the Dow today.

Glassman and Hassett turn this into:

One of the hottest business books around…. It has wonderfully clear explanations of financial theory [and] excellent advice on general investing approaches.

So add Alan Sloan to Burton Malkiel on the list of those grossly and mendaciously misrepresented be the back cover of Dow 36000.

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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